7. Equity

During the six months ended June 30, 2018, Simon issued 6,000 shares of common stock to a limited partner of the Operating Partnership in exchange for an equal number of units pursuant to the partnership agreement of the Operating Partnership. During the six months ended June 30, 2018, the Operating Partnership redeemed 49,219 units from four limited partners for $7.6 million. These transactions increased Simon’s ownership interest in the Operating Partnership.

On February 13, 2017, Simon’s Board of Directors authorized a two-year extension of the previously authorized $2.0 billion common stock repurchase plan through March 31, 2019. Simon may repurchase the shares in the open market or in privately negotiated transactions as market conditions warrant. During the six months ended June 30, 2018, Simon purchased 1,988,247 shares at an average price of $154.56 per share as part of this program. During the six months ended June 30, 2017, Simon purchased 2,399,051 shares at an average price of $165.14 per share as part of this program. As Simon repurchases shares under this program, the Operating Partnership repurchases an equal number of units from Simon.

Temporary Equity

Simon

Simon classifies as temporary equity those securities for which there is the possibility that Simon could be required to redeem the security for cash irrespective of the probability of such a possibility. As a result, Simon classifies one series of preferred units in the Operating Partnership and noncontrolling redeemable interests in properties in temporary equity. Each of these securities is discussed further below.

Limited Partners’ Preferred Interest in the Operating Partnership and Noncontrolling Redeemable Interests in Properties. The redemption features of the preferred units in the Operating Partnership contain provisions which could require the Operating Partnership to settle the redemption in cash. As a result, this series of preferred units in the Operating Partnership remains classified outside permanent equity. The remaining interests in a property or portfolio of properties which are redeemable at the option of the holder or in circumstances that may be outside Simon’s control are accounted for as temporary equity. The carrying amount of the noncontrolling interest is adjusted to the redemption amount assuming the instrument is redeemable at the balance sheet date. Changes in the redemption value of the underlying noncontrolling interest are recorded within accumulated deficit. There were no noncontrolling interests redeemable at amounts in excess of fair value as of June 30, 2018 and December 31, 2017. The following table summarizes the preferred units in the Operating Partnership and the amount of the noncontrolling redeemable interests in properties as follows:


	As of		As of
	June 30,		December 31,
	2018		2017
7.50% Cumulative Redeemable Preferred Units, 260,000 units authorized, 255,373 issued and outstanding	$	25,537	$	25,537
Other noncontrolling redeemable interests in properties		172,464		164,943
Limited partners’ preferred interest in the Operating Partnership and noncontrolling redeemable interests in properties	$	198,001	$	190,480

The Operating Partnership

The Operating Partnership classifies as temporary equity those securities for which there is the possibility that the Operating Partnership could be required to redeem the security for cash, irrespective of the probability of such a possibility. As a result, the Operating Partnership classifies one series of preferred units and noncontrolling redeemable interests in properties in temporary equity. The following table summarizes the preferred units and the amount of the noncontrolling redeemable interests in properties as follows:


	As of		As of
	June 30,		December 31,
	2018		2017
7.50% Cumulative Redeemable Preferred Units, 260,000 units authorized, 255,373 issued and outstanding	$	25,537	$	25,537
Other noncontrolling redeemable interests in properties		172,464		164,943
Total preferred units, at liquidation value, and noncontrolling redeemable interests in properties	$	198,001	$	190,480

Stock Based Compensation

Awards under our stock based compensation plans primarily take the form of LTIP unit and restricted stock grants. Restricted stock and awards under the LTIP programs are all performance based and are based on various individual, corporate and business unit performance measures as further described below. The expense related to these programs, net of amounts capitalized, is included within home and regional office costs and general and administrative costs in the accompanying statements of operations and comprehensive income.

LTIP Programs. The Compensation Committee has approved long‑term, performance based incentive compensation programs, or the LTIP programs, for certain senior executive officers. Awards under the LTIP programs take the form of LTIP units, a form of limited partnership interest issued by the Operating Partnership, which are subject to the participant maintaining employment with us through certain dates and other conditions as described in the applicable award agreements. Awarded LTIP units not earned in accordance with the conditions set forth in the applicable award agreements are forfeited. Earned and fully vested LTIP units are equivalent to units of the Operating Partnership. During the performance period, participants are entitled to receive distributions on the LTIP units awarded to them equal to 10% of the regular quarterly distributions paid on a unit of the Operating Partnership. As a result, we account for these LTIP units as participating securities under the two‑class method of computing earnings per share.

Awards under the LTIP programs for 2016 will be considered earned if, and only to the extent to which, applicable total shareholder return, or TSR, performance measures, as defined in the applicable award agreements, are achieved during the applicable performance periods. Once earned, LTIP units are subject to a two-year vesting period. One‑half of the earned LTIP units will vest on January 1 of each of the second and third years following the end of the applicable performance period.

In 2018, the Compensation Committee established and granted awards under a redesigned LTIP program, or the 2018 LTIP program. Awards under the 2018 LTIP program were granted in two tranches, Tranche A LTIP units and Tranche B LTIP units. Each of the Tranche A LTIP units and the Tranche B LTIP units will be considered earned if, and only to the extent to which, the respective goals based on Funds From Operations, or FFO, per share or Relative TSR Goal performance criteria, as defined in the applicable award agreements, are achieved during the applicable two-year and three-year performance periods of the Tranche A LTIP units and Tranche B LTIP units, respectively. One‑half of the earned Tranche A LTIP units will vest on January 1, 2021 with the other one-half vesting on January 1, 2022. All of the earned Tranche B LTIP units will vest on January 1, 2022.

The grant date fair value of the portion of the LTIP units based on achieving the target FFO performance criteria is $6.25 million for the Tranche A LTIP units and the Tranche B LTIP units, for a total of $12.5 million. The 2018 LTIP program provides that the value of the FFO-based award may be adjusted up or down based on the Company’s performance compared to the target FFO performance criteria and has a maximum potential fair value of $18.75 million. The value of the FFO-based award is recorded as expense over the period from the grant date to the date at which the awards, if earned, would become vested, based on our assessment as to whether it is probable that the performance criteria will be achieved during the applicable performance periods.

The grant date fair values of any LTIP units based on TSR performance are estimated using a Monte Carlo model, and the resulting fixed expense is recorded regardless of whether the TSR performance criteria are achieved if the required service is delivered. The grant date fair values are being amortized into expense over the period from the grant date to the date at which the awards, if earned, would become vested.

The Compensation Committee approved LTIP unit grants as shown in the table below. The extent to which LTIP units were earned, and the aggregate grant date fair value, are as follows:


LTIP Program	LTIP Units Earned	Grant Date Fair Value of TSR Award	Grant Date Target Value of FFO-Based Award
2013-2015 LTIP program	466,405	$28.5 million	—
2014-2016 LTIP program	120,314	$27.5 million	—
2015-2017 LTIP program	—	$25.1 million	—
2016-2018 LTIP program	To be determined in 2019	$26.3 million	—
2018 LTIP program - Tranche A	To be determined in 2020	$6.25 million	$6.25 million
2018 LTIP program - Tranche B	To be determined in 2021	$6.25 million	$6.25 million

We recorded compensation expense, net of capitalization, related to these LTIP programs of approximately $8.6 million and $5.1 million for the six months ended June 30, 2018 and 2017, respectively.

Restricted Stock. The Compensation Committee awarded 43,043 shares of restricted stock to employees during the six months ended June 30, 2018 at a weighted-average fair market value of $154.35 per share. During the six months ended June 30, 2018, our non-employee Directors were awarded an aggregate of 12,648 shares of restricted stock at a weighted average fair market value of $158.71 per share. These shares represent a portion of the compensation we pay our non-employee Directors, and all of the shares have been placed in a non-employee Director deferred compensation account maintained by us. The grant date fair value of the employee restricted stock awards is being recognized as expense over the three-year vesting service period. The grant date fair value of the non-employee Director restricted stock awards is being recognized as expense over the one-year vesting service period. In accordance with the Operating Partnership's partnership agreement, the Operating Partnership issued an equal number of units to Simon that are subject to the same vesting conditions as the restricted stock.

We recorded compensation expense, net of capitalization, related to restricted stock of approximately $4.0 million and $5.3 million for the six months ended June 30, 2018 and 2017, respectively.

Other Compensation Arrangements. On July 6, 2011, in connection with the execution of an employment agreement, the Compensation Committee granted David Simon, Simon’s Chairman and Chief Executive Officer, a retention award in the form of 1,000,000 LTIP units, or the Award, for his continued service as Simon’s Chairman and Chief Executive Officer through July 5, 2019. Effective December 31, 2013, the Award was modified, or the Current Award, and as a result the LTIP units now become earned and eligible to vest based on the attainment of Company‑based performance goals, in addition to the service‑based vesting requirement included in the original Award. The Current Award does not contain an opportunity for Mr. Simon to receive additional LTIP units above and beyond the original Award should our performance exceed the higher end of the performance criteria. The performance criteria of the Current Award are based on the attainment of specific FFO per share. Because the performance criteria has been met, a maximum of 360,000 LTIP units, or the A units, 360,000 LTIP units, or the B units, and 280,000 LTIP units, or the C units, became earned on December 31, 2015, December 31, 2016 and December 31, 2017, respectively. Based on the Company’s performance in 2015, 360,000 A units were earned. Based on the Company’s performance in 2016, 360,000 B units were earned. Based on the Company’s performance in 2017, 280,000 C units were earned. If the relevant performance criteria had not been achieved, all or a portion of the Current Award would have been forfeited. The earned A units vested on January 1, 2018, earned B units will vest on January 1, 2019 and earned C units will vest on June 30, 2019, subject to Mr. Simon’s continued employment through such applicable date. The grant date fair value of the retention award of $120.3 million is being recognized as expense over the eight‑year term of his employment agreement on a straight‑line basis based through the applicable vesting periods of the A units, B units and C units.

Changes in Equity

Simon

The following table provides a reconciliation of the beginning and ending carrying amounts of total equity, equity attributable to common stockholders and equity attributable to noncontrolling interests:


					Accumulated						Common
					Other		Capital in				Stock
	Preferred		Common		Comprehensive		Excess of		Accumulated		Held in		Noncontrolling		Total
	Stock		Stock		Income (Loss)		Par Value		Deficit		Treasury		interests		Equity
January 1, 2018	$	43,077	$	32	$	(110,453)	$	9,614,748	$	(4,782,173)	$	(1,079,063)	$	552,596	$	4,238,764
Exchange of limited partner units for common shares								70						(70)		—
Treasury stock purchase												(307,296)				(307,296)
Redemption of limited partner units								(7,047)						(572)		(7,619)
LTIP units														15,769		15,769
Cumulative effect of accounting change										7,264						7,264
Purchase and disposition of noncontrolling interests, net and other		(165)						(2,678)		(18,076)		5,740		114		(15,065)
Adjustment to limited partners’ interest from change in ownership in the Operating Partnership								52,717						(52,717)		—
Distributions to common stockholders and limited partners, excluding Operating Partnership preferred interests										(1,210,168)				(182,949)		(1,393,117)
Distributions to other noncontrolling interest partners														(964)		(964)
Comprehensive income, excluding $957 attributable to preferred interests in the Operating Partnership and a $559 loss attributable to noncontrolling redeemable interests in properties						(4,832)				1,169,327				176,397		1,340,892
June 30, 2018	$	42,912	$	32	$	(115,285)	$	9,657,810	$	(4,833,826)	$	(1,380,619)	$	507,604	$	3,878,628

The Operating Partnership

The following table provides a reconciliation of the beginning and ending carrying amounts of total equity, equity attributable to partners and equity attributable to noncontrolling interests:


	Preferred		Simon (Managing		Limited		Noncontrolling		Total
	Units		General Partner)		Partners		interests		Equity
January 1, 2018	$	43,077	$	3,643,091	$	548,858	$	3,738	$	4,238,764
Limited partner units exchanged to units				70		(70)				—
Treasury unit purchase				(307,296)						(307,296)
Redemption of limited partner units				(7,047)		(572)				(7,619)
LTIP Units						15,769				15,769
Cumulative effect of accounting change				7,264						7,264
Purchase and disposition of noncontrolling interests, net and other		(165)		(15,014)		1		113		(15,065)
Adjustment to limited partners’ interest from change in ownership in the Operating Partnership				52,717		(52,717)				—
Distributions to limited partners, excluding preferred interests classified as temporary equity		(1,669)		(1,208,499)		(182,949)		(964)		(1,394,081)
Comprehensive income, excluding $957 attributable to preferred interests in the Operating Partnership and a $559 loss attributable to noncontrolling redeemable interests in properties		1,669		1,162,826		175,652		745		1,340,892
June 30, 2018	$	42,912	$	3,328,112	$	503,972	$	3,632	$	3,878,628